Amber Rudd has announced that increased subsidies will be offered to electricity suppliers from the capacity market auction, and penalties for those providers who fail to meet the agreed supply targets will be made more severe.
The capacity market auction was introduced as a measure to try and widen the gap between peak supply and peak demand of energy in the country – something that has been a growing problem recently, especially at the end of last year when we were running at a surplus of just 1.2%.
The dangerously low levels of supply meant that National Grid were forced to spend just under £2.5 million in November last year in order to prevent black or brown outs. This expense came from the implementation of two separate emergency measures.
The way the capacity market works is that energy suppliers will offer up their various generators and power stations and those successful in the auction “will benefit from a steady, predictable revenue stream (capacity payments)” in return for upholding a capacity obligation over a designated year.
The obligations made as part of the capacity market auction come into effect four years after the agreements are reached.
This incentivises energy providers to maintain exiting power sources and to invest in new ones as they bid for the capacity payments, benefitting them and the country’s energy consuming households at the same time both in terms of the cost and availability of said energy.
Rudd said: “the capacity market has driven down costs and secured energy at the lowest possible price for bill-payers, but I’m taking further action to tackle the legacy of under-investment and ensure our country’s long-term energy security.”
Rudd has now announced that as part of the capacity market auction, her department will be subsidising a further 1GW of power. She also plans to still increase the amount of energy promised from the capacity market auction but the exact level is as yet unspecified.
She also announced that she would be increasing the severity of punishments (i.e. the size of the fines) for suppliers who fail to meet the agreed amount as set out in their capacity obligations.
SSE, for example, recently found themselves forced to renege on their promise to keep their Fiddlers Ferry coal power station open to provide reserve power. Three of the plant’s four units, which provide 2GW of power in total, will be closed down by the end of April this year.